A high tax burden coupled with a financial crisis causes some people to file Bankruptcy. If you’re considering Bankruptcy, you should learn the types of Bankruptcy, which taxes can be discharged, and how to successfully file.
Individual bankruptcies have increased steadily since the 1980s. While improving over the last couple years, 2014 bankruptcies were still close to one million filings. Filing Bankruptcy for tax debt is one of many reasons why people seek this solution and consult with an Arkansas Bankruptcy lawyer to file their case.
HOW BANKRUPTCY WORKS
There are two main types of Bankruptcy that individuals can file: Chapter 7 or Chapter 13.
- Chapter 7 Bankruptcy will liquidate all the individual’s assets that are not protected under law and distribute them among the creditors. Leftover debt that qualifies will be discharged at that time. If a federal tax lien was issued, it will most likely remain until paid off.
- Chapter 13 Bankruptcy will create a payment plan to pay off debts in a three to five-year time period. Any federal tax lien will most likely be removed at the end of that payment period.
Both filings will put an “automatic stay” on any current collections efforts. This means you and your assets will be protected immediately, and all harassing telephone calls and correspondence from creditors will stop.
WHICH TAX DEBTS CAN BE DISCHARGED?
The rules under 11 USC §§ 523(a)(1) and 507(a)(8) state:
- The tax return with a tax liability must be at least three years old, including extensions
- The tax return must have been filed at least two years before the Bankruptcy petition (this is usually applicable for late returns)
- An IRS-prepared “substitute for return” will not be acceptable; you must have filed your tax return
- More than 240 days must have elapsed since an IRS assessment
If you meet these qualifications, filing Bankruptcy for tax debt may help you. An attorney can look at your transcript record, extensions, assessments, penalties, and interest to determine if you are qualified.
WHAT YOU NEED TO KNOW
- You’ll be required to have credit counseling within 180 days before filing your case. You must obtain the counseling from a court-approved provider.
- Your Bankruptcy will be public record and can be seen by creditors.
- The Bankruptcy can remain on your credit report from seven to ten years.
HIRE A BANKRUPTCY ATTORNEY
Bankruptcy is settled in court, although most individuals do not need to attend a court proceeding. In order to ensure the correct forms have been filled out and all the steps completed, it’s best to contact an Arkansas Bankruptcy lawyer.
Caddell & Reynolds have experience with these cases and can help you determine if filing Bankruptcy for tax debt is appropriate for you. To learn more about Bankruptcy or to schedule a consultation contact us today or give us a call at (800) 889-6944.